Chandler Ltd. estimates sales for the second quarter of 2014 will be as follows.

Question

Chandler Ltd. estimates sales for the second quarter of 2014 will be as follows. The target ending inventory of finished products is as follows 2 units of material are required for each unit of finished product. Production for July is estimated at 2,670 units to start building inventory for the fall sales period. Chandler's policy is to have an inventory of raw materials at the end of each month equal to 50% of the following month's production requirements. Raw materials are expected to cost $7 per unit throughout the period. Calculate the May raw materials purchases in dollars. The May raw material purchases cost

Explanation / Answer

Calculations March April May June A Sales 2530 2470 2310 B Add: Closing stock of Finished product 2010 2260 2130 2360 C = Closing of previous month Less: opening stock 2010 2260 2130 D = A + B - C Production 2780 2340 2670 E = D x 2 Raw material required 5560 4680 5340 F = Next month E x 0.50 Add: Closing stock of Raw material 2340 2670 G = Previous month opening inventory Less: opening stock 2340 H = E + F - G Raw material purchased 5010 I = H x $7 Raw material purchased $ 35070

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